Senate plan reveals it's not just for Wall Street

Kevin G. HallMcClatchy Newspapers

Published Thursday, October 02, 2008

WASHINGTON -- The Senate version of a $700 billion plan designed to rescue the ailing financial sector from potential collapse is virtually identical to large parts of the legislation rejected Monday in the House of Representatives.

However, the Senate measure, called the Emergency Economic Stabilization Act of 2008, adds unrelated tax-cut legislation. That may or may not bring more House votes if and when it's re-introduced in the lower chamber. It also may alienate fiscal conservatives who oppose tax breaks that expand federal deficits.

In the financial rescue section, the Senate bill would:

* Provide the government an equity stake, through non-voting or preferred stock, in companies that are unloading bad assets. If these companies go bankrupt, these warrants convert to a type of debt that places the government at the head of the list of creditors in any bankruptcy proceeding.

* Give the Treasury secretary broad discretion to buy virtually any distressed asset in an effort to get it off the books of a troubled bank or financial firm and help unclog the credit markets. This is called the Troubled Assets Relief Program, or TARP.

* Provide $250 billion immediately to purchase mortgage-backed securities and other troubled assets, another $100 billion with the president's authorization and the remaining $350 billion would be subject to separate congressional approval.

* Give the Federal Deposit Insurance Corp. the ability to borrow without limit from the Treasury to help stabilize banks it regulates, both large and small. This isn't in the House legislation.

* Allow the FDIC to raise deposit insurance to $250,000 from the current $100,000. Affects the sum of deposits, not each account, in a depositor's name at any given bank. This too isn't in the House legislation.

The legislation also includes a section on creating parity for the insurance treatment of mental health problems.

It ends with sections on state and local government and how these governments secure funds for federal lands within their boundaries.